University of Maryland Extension

Calculating profits for taxes

Author: 
Dale M. Johnson, Extension Specialist, Farm Management

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An income statement is the one financial form that is required by the Internal Revenue Services for all farm businesses. It is used to calculate profit for tax purposes. The IRS version of an income statement is Schedule F (Form 1040) Profit or Loss From Farming (Figure 2). Note that this form is subject to change from year to year. You can access the up to date form at https://www.irs.gov/

Notice that the two main sections of the Schedule F are Part I Farm income and Part II Farm Expenses. In Part I there are lines for various types of farm income. Most farm income is recorded on line 2, “Sales of livestock, produce, grains, and other products you raised. Part II is used for recording farm expenses. Notice that variable/operating expenses and fixed/overhead expenses are intermixed on the form and that depreciation is on line 14. The IRS specifies methods for calculating depreciation which are often used by farmers for calculating depreciation for management purposes. To understand more about Schedule F and about tax depreciation calculation, refer to IRS publication 225, Farmer’s Tax Guide (IRS 2018).

 //www.irs.gov/ Figure 2: Internal Revenue Service Schedule (IRS) F (Form 1040) is the form required by the IRS to calculate and report profit for tax purposes. Note that this form is subject to change from year to year. You can access the up to date form at https://www.irs.gov/

 

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